Kempen (Lux) Euro High Yield Fund Class BN
The Fund aims to earn a higher total long term return than the benchmark by implementing an active investment policy. In order to achieve this, a diversified portfolio is constructed while investment risks are continuously monitored. Investments are selected on the basis of an extensive analysis of the terms and conditions of the bond issues.
Performance per 2021-02-28 (rebased)
Performance per 2021-02-28
|This year||0.0 %|
|Total fund size|| |
EUR 288.71 M 2021-03-31
|Share class size|| |
EUR 0.00 M
|Turnover rate|| |
Fund characteristics per 2021-03-31
|Number of holdings||165||687|
Developments per 2021-03-31
March was not an overly volatile month for credit although the last week did produce a bit of volatility. The ECB remains vocal in its support for the bond market and its low rate strategy. This was to be expected after the relatively strong run up in the German 10 year government yield in February (+26 bps). Christine Lagarde asserted that the Governing Council â€˜has exceptional tools to use at the moment, and a battery of those. We will use them as and when needed.â€™
At the end of the month volatility picked up a bit. This was caused by a combination of economic data, COVID news flow and the sudden blow up of family office Archegos that caused multibillion dollar losses at several banks. Spreads of Credit Suisseâ€™s holdco bonds widened by about 15 bps in the month as a result. Despite this, Q1 2021 was an incredibly stable quarter for bank spreads. According to ABN Amro, spreads closed just 0.2 basis points wider for the quarter. The Euro-denominated bank index now stands at 56 bps over swap. Again according to ABN AMRO, this was the most stable quarter for Euro-denominated bank spreads since the index data begun in 1999!
On the economic side in Europe, European and French sentiment data improved, the March PMI data for Europe showed a final reading of 62.5 â€“ almost 5 points higher than February, and worries about bad German employment data were unfounded. The manufacturing side of the economy keeps doing well while the services side remains impacted by various forms of COVID related lockdowns. The readings from the services PMIs are not disastrous however and show that the economy is adjusting to the new environment. This bodes well for when the vaccination rate picks up and various restrictions can be eased. Also US economic data continuous to improve.
After a strong run up in government bond yields in February, German rates softened slightly in March. US rates however continued to rise and the US 10 year government bond hit the 1.74% level and was up another 34 bps in the month. It is now back to levels last seen in February 2020 but still quite a way off from the 3%+ level seen at the end of 2018. Also the 2 â€“ 10 year spread has widened significantly year to date. It started the year at 80 bps and now hovers around the 150 bps mark. This is positive for the profitability of US banks. In contrast to the ECB, the FED seems rather sanguine with regard to the rise in yields. They do openly express their wish to see inflation run above their target for a while and are in no rush to boost short-term interest rates to supress the taxing effect of higher inflation. The US bond market is actively pricing this in.
The pandemic continued to have an influence on markets. As per the end of the month John Hopkins reported the number of global fatalities now surpassed the 2.75 million mark. Over the month of March we saw the number of new daily cases again accelerate after a slowdown in February. This acceleration was largely caused by emerging markets like Brazil, Mexico and India and to a lesser extent by Continental Europe. This caused lock down measures to largely intensify in several European countries (France, Belgium, Italy). On the vaccine front news was mostly positive, as several studies confirmed that the vaccinations are very effective. However, it is also clear that premature relaxation of COVID related measures cause the virus to flare up in the younger part of the population that is not vaccinated yet. Also the pressure on hospital systems is only slowly receding. Full re-opening of economies is therefore probably not going to happen before the summer or even autumn.
On the fiscal side support continuous to be strong. Resulting in higher growth forecasts, mainly for the US. One of the big reasons for higher growth forecasts in the US has been the Biden stimulus package with a size of 9% of the US GDP. Hot on the heels of this 1.9 trillion $ stimulus package comes a proposal for an almost 2.3 trillion $ package with a strong focus on infrastructure investments. The plan is that this package will be funded via an increase in the corporate tax rate from 21% to 28%. It still needs to pass Congress and it remains to be seen if President Biden can keep all the Democrats on board.
The economic data coming out of the US remain strong. Unemployment continues to decline, wage growth remains healthy and confidence numbers remain in expansionary mode. The only negative came from a decline in retail sales MoM although February was revised upwards to +7.6% so this data point was largely ignored by the market. Also the US managed to again increase the pace of vaccinations. The percentage of the population having received at least one shot of the vaccine increased from slightly more than 15% of the population to slightly less than 30% of the population during the month of March. At the end of the month around 3 million shots were given per day which amounts to almost 1% of the population. In Europe, the vaccination rate also accelerated but was hampered by continued uncertainty around the safety of the AstraZeneca vaccine.
The demand for credit remains strong, and also the ECB picked up their acquisition pace after the relatively low amount they purchased in February (approximately â‚¬4 billion). In March the ECB bought a net â‚¬6.9 billion in corporate bonds under its CSPP program. This was also significantly higher than the amount that they bought in January (â‚¬4.9 billion). It is clear that the ECB reacted to counteract the run-up in government bond rates. Supply of corporate bonds in March amounted to â‚¬45 billion, with net supply at â‚¬14 billion. Sector wise TMT, Real Estate & Utilities are responsible for a big part of the year to date issuance with in total â‚¬18 billion, â‚¬19 billion and â‚¬24 billion respectively issued this year. Due to the ongoing strong demand for corporate bonds new issue premiums have been little to non-existent this year relative to this time last year (pre-crisis) when new issue premiums were strong. Many new issues have been priced through their curves. However, during the last two weeks of March this fortunately temporarily changed for a while and we could participate in several new issues that offered attractive premiums. Corporate hybrids' supply is up significantly to â‚¬15 billion year-to-date versus â‚¬6 billion last year and just â‚¬3 billion in 2019. Many corporates continue to issue hybrids to support their ratings and to refinance maturing hybrids. Financial supply amounted to â‚¬29 billion in March, which is up on March 2020 (â‚¬14 billion) and similar to February 2021 (â‚¬30 billion). Supply totals â‚¬84 billion YTD, ahead of 2020 YTD supply of â‚¬79 billion.
In March subordinated insurance and corporate hybrids outperformed the overall index tightening. These segments outperformed BB corporates. B rated corporates also clearly outperformed BBs pointing to risk seeking behaviour of market participants. The insurance, infrastructure, and travel & leisure sector were the strongest performing sectors. The sentiment for travel improved in February on the back of a more positive outlook on travel in the medium term. This continued to affect spreads positively in March while the rhetoric from politicians regarding summer holidays worsened. The only two sectors that posted negative returns during March where the food & beverage sector and the technology sector. However, these two sectors are small in the index with a combined weight of less than 4% so this didnâ€™t expect the overall High Yield index much.
During the month, the portfolioâ€™s sensitivity to market trends varied between 102% and 110%. The portfolio therefore held an overweight positioning in terms of market risk.
Our positioning in automobiles, telecommunications and utilities all contributed positively to the relative performance. Travel & leisure and construction & materials detracted from the relative performance.
At individual company level, positive contributions came from the overweight in Volkswagen perpetuals, General Electric and International Consolidated Airlines Group. Also the overweight in Kraft Heinz again contributed positively. Our underweight in Deutsche Lufthansa contributed negatively as this position outperformed in the tightening. Also our overweight in Valeo contributed negatively as spreads widened slightly in a tightening market.
In March the Fund participated in new deals from amongst others Faurecia, Vilmorin, International Consolidated Airlines Group and Saipem. As said before, there was a brief period when new issues provided relatively attractive new issue premiums, especially on the bank side. As a result we also participated in new Tier 2â€™s issued by SociÃ©tÃ© GÃ©nÃ©rale, Barclays and Standard Chartered. Having said that, the period was brief so we have returned to our previous stand. This means that we take a conservative approach towards participating in new issues as new issue premiums are limited and all in valuations look increasingly stretched (especially on the long end).
We remain mildly constructive on the market. Although we see the significant positive effect that a working vaccine will progressively have on the economy in the longer term, we do remain concerned on the near term economic growth expectations. We expect economic growth momentum to continue to be weak in the near term, but have a positive view on a 3-6 month horizon with a recovery expected by the end Q2. Especially for the US we have strong growth expectations. This does however increase the risk of a more restrictive monetary policy. Companies remain very much bond holder focussed. This supports the fundamental quality. However after the rally in 2020 valuations are starting to look expensive. Finally, the technical backdrop still remains very robust as a result of the ECBâ€™s willingness and ability to provide liquidity to the government and corporate bond markets combined with limited net supply.
Performance per 2021-02-28 (rebased)
Performance per 2021-02-28
|This year||0.0 %|
Maturity profile (2021-03-31)
Sector allocation (2021-03-31)
Rating allocation (2021-03-31)
Top 10 holdings (2021-03-31)
Share class details
|Share class|| |
|Investor type|| |
Institutional & Private
|Benchmark i|| |
BofA Merrill Lynch Composite Index
|Reference index i|| |
BofA Merrill Lynch BB-B High Yield Constrained Index
|Duration hedged|| |
|Investment category|| |
Credits denominated in euro
|UCITS status i|| |
|Base currency|| |
|Share class currency|| |
|Management company|| |
Kempen Capital Management N.V.
|Depositary and custodian|| |
J.P. Morgan Bank Luxembourg S.A.
|Minimum subscription|| |
Initial Subscription: â‚¬ 1
|Subscription/Redemption Frequency|| |
|ISIN i|| |
Key Investor Information
Sustainability related disclosures
Formal documents other
Kempen's vision and mission
Kempen Capital Management is an asset manager that believes in stewardship and investment focusing on the long-term for the benefit of all stakeholders. Value creation is at the heart of the services we provide to our clients. We believe that being an engaged shareholder on environmental, social and governance (ESG) issues and retaining a long-term focus, is critical to helping our clients to preserve and create sustainable wealth that has positive real world impact and economic returns.
Kempen wide approach to responsible investment
We are committed to create sustainable alpha. The four pillars of our ESG-policy are:
ESG integration: Ensuring sustainability risks and opportunities are adequately considered in our investment analysis and processes.
Exclusion & avoidance: Not investing in companies involved in controversial activities or conduct.
Active ownership: Being responsible stewards of our clientsâ€™ capital and using our influence through engagement and voting to improve corporate behaviour on specific ESG issues and achieve positive change
Positive impact: Investing with an objective to achieve positive real world outcomes and impact, such as contributing to the UN Sustainable Development Goals.
To put our mission and vision into practice we engage with our investee companies on a wide array of strategic, financial, and ESG topics. As an active owner we use our influence to improve our investee companiesâ€™ ESG performance.Â This helps us address some of the most pressing and important sustainability issues facing business and the world. Our focus themes for engagement are: human rights, labour rights, climate change and governance.
Through collaboration with other investors and industry think tanks we contribute to the development of principles and standards of corporate responsibility both at sector levels, as well as investee company level.
As a long-term investor, we believe climate change represents a systemic risk facing the economy, society and environment. We want to consider the risks and opportunities this presents to our investments in the coming decades. We have therefore set a long-term commitment (2050), a mid-term ambition (2030) and short-term objectives (2025).
- 2050 commitment: Net-zero investor.Â Â
- 2030 ambition: To align with a Paris Agreement pathway (listed and non-listed investments) and Dutch Klimaatakkoord.Â Â Â
- 2025 objectives: To align with a pathway towards achieving the Paris Agreement (listed investments) and Dutch Klimaatakkoord goals.
The Kempen climate change policy can be foundÂ hereÂ (under climate change policy).
We use carbon intensity as a metric to come to the pathway of net-zero emissions. As we care about the direction of travel and reduction of carbon emissions in the economy, it might be that the actual reducing trend may deviate from the suggested average trend line. The pathway is derived from the pathway of the EU Benchmarks.
OUR FUND APPROACH TO RESPONSIBLE INVESTMENT
Kempenâ€™s ESG policy is fully implemented in our fundâ€™s investment process across the three relevant pillars of:Â Exclusion, Integration and Active ownership and impact.
In line with the general Kempen policy, the Kempen Euro Credit StrategiesÂ exclude all companies on the KCM exclusion- or avoidance list. Companies on these lists are either involved in the production of controversial weapons, they derive a significant portion of their revenues from the production or distribution of tobacco, or have been involved in serious controversies.Â In addition, we exclude pure coal players and pure players involved in tar sands, as these activities have an adverse impact on climate change.
2. ESG Integration
Responsible Investment in the Kempen Euro Credit Strategies is not limited to the exclusion of companies. Rather, ESG criteria are an integral part of the investment process. To form a fundamental opinion on a company, the portfolio managers assess the business profile, the financial profileÂ andÂ the ESG profile. Research provided by MSCI ESG Research LLC is used as a basis for the ESG assessment.Â Â Â
A low score on ESG criteria can result in the demand for an additional premium on the companyâ€™s bonds and/or initiation of an engagement with the issuer. If ESG risks are deemed too severe, an investment in the company will be avoided and/or existing holdings will be sold.
On a quarterly basis, the Kempen Responsible Investment team screens the holdings of the Kempen Euro Credit Strategies, and discusses the findings with the portfolio managers. Special attention is paid to companies scoring an MSCI ESG rating of B or lower, those with a â€˜failâ€™ marked against the criteria of the UN Global Compact or those companies that attract a red flag on the MSCI ESG impact monitor. Companies in carbon intensive sectors are also given special attention. We prefer to invest in companies that integrate climate risks and opportunities into their organisation, and are able to move towards a low- carbon economy.
3. Active Ownership
For our Kempen Euro Credit Strategies, we distinguish between three types of engagement. They are i) an engagement for awareness, ii) an engagement for change, and iii) a public policy and/or systemic engagement. Engagement for awareness is aimed at raising awareness on certain issues with a company and/or collecting more information on a specific ESG issue. Engagement for change, which could follow an engagement for awareness, has the goal of achieving a specific SMART goal. The third form of engagement relates to seeking an improvement in a public policy or a system relevant to wider capital markets
Our engagement process defines four milestones:
1. Raise concern with the company;
2. Company acknowledges the issue;
3. Company sets out a strategy / agrees to improve;
4. Company implements the strategy.Â Â
Our engagement could start at any of the first three milestones. When a milestone is reached, a document of proof is attached to the engagement case and the engagement will move on to the following milestone. When the fourth milestone is reached, the engagement is closed, but we continue to monitor the company. If at any stage the company refuses to cooperate, divestment has to be considered. To measure willingness to cooperate, we set specific timelines for the engagement. With regard to climate change, we engage generally and take a sector-specific approach for the most carbon-intensive companies and sectors (oil and gas, utilities), as these count for the largest part of the global carbon emissions.
The Kempen Euro Credit Strategies, began an engagement with Bayer in 2018, following their acquisition of Monsanto. Through the acquisition, Bayer inherited several significant controversies in the field of genetically modified organisms (GMOs). The goal of our engagement is to get a formal and written statement from the company which states that they will not sue small holder farmers for the unintended use of Bayer licensed GMO crops. It also asks the company to set a target for the number of farmers that receive education on their crop protection products.
In addition we have ongoing engagement cases with Volkswagen on its company culture, Cez on the use of thermal coal (you can find the engagement factsheetÂ here).Â We do this direct and collaborative via theÂ Climate Action 100+ engagement initiative.
With regard to climate change we prefer:
- Green bonds over non-green bonds if the risk-returns are similar. We have (as stated in the 2025 objectives) a green bond target on a â€˜comply or explainâ€™ basis (e.g. it must fit with the investment strategy). Targets need to be relevant, although the investment strategy characteristics need to be taken into account.
- Sustainable (-Linked) / SDG-Linked bonds over non-sustainable / SDG-Linked bonds if the risks-returns are similar. Note that as with green bonds, there are criteria for these bonds and these will be assessed on a case-by-case basis.
 The Kempen (Lux) Euro Credit Fund, Kempen (Lux) Euro Credit Fund Plus, Kempen (Lux) Euro Sustainable Credit Fund and Kempen (Lux) Euro High Yield Fund
Although Kempen Capital Management N.V.â€™s information providers, including without limitation, MSCI ESG Research LLC and its affiliates (the â€œESG Partiesâ€), obtain information from sources they consider reliable, none of the ESG Parties warrants or guarantees the originality, accuracy and/or completeness of any data herein. None of the ESG Parties makes any express or implied warranties of any kind, and the ESG Parties hereby expressly disclaim all warranties of merchantability and fitness for a particular purpose, with respect to any data herein. None of the ESG Parties shall have any liability for any errors or omissions in connection with any data herein. Further, without limiting any of the foregoing, in no event shall any of the ESG Parties have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.